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					                                 T HE E CONOMICS OF ONLINE ADVERTISING: AN OVERVIEW


                                                                                                                                                                                  FLORIAN BERSIER
                                                                                                                                                                                   École Polytechnique

                                                                                                                                                                          MATHILDE DELEVAL
                                                                                                                                                                              HEC Paris

                                                                                                                                                                 GABRIELLE MOINEVILLE
                                                                                                                                                                      AgroParisTech




                                                                                                                                                                                                   March 2008


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Table of Contents

Introduction......................................................................................................................................3
1.Online advertising: description of a complex environment .............................................................4
   1.1.Internet users...........................................................................................................................4
   1.2.Advertisers...............................................................................................................................4
   1.3.The matching..........................................................................................................................4
2.Market analysis: what’s happening online?....................................................................................10
   2.1.An short history of the online advertising sector....................................................................10
   2.2.Market definition: 3 distinct markets?...................................................................................12
   2.3.Integration............................................................................................................................14
   2.4.A kind of two-sided market?..................................................................................................16
3.Idea for further research................................................................................................................17
  3.1.Short welfare analysis: back to the user point of view..............................................................17
Conclusion......................................................................................................................................18
Glossary & Acronyms......................................................................................................................19
References........................................................................................................................................20
Links................................................................................................................................................20
                          THE ECONOMICS OF ONLINE ADVERTISING                                        2


Introduction

    Three main business models exist to monetize the Internet: access contribution (AOL, Orange),
services directly paid online by each user (Meetic, Le Monde, Ebay), or get paid through advertising
(Search Engines, Facebook…). Online advertising is related to the latter, which sees its importance
growing sharply today.
From the first simple banner sold in 1994 to the very elaborated products available now, this sector
has shown a complex evolution. Today's actors integrate a wide range of services for web users and
advertisers, and it is difficult to know in this dematerialized context who provides what.
This study aims at providing a general description of the sector, historical backround and tools to
analyse it further using strategy and economics. Very few data about actual revenues composition and
market shares are available online, but we have tried to distinguish who were the biggest actors
online, their relative position and their exact competences and rôles on the net.
In the first part we describe the whole chain surrounding online advertising, the main actors at stake
and the products menu. The second part zooms in on the providers of these products; it intends to
provide a definition of the market and an analysis of its structure. The third mentions briefly other
points that could be used to carry on this study, using game theory and information economics.


                       description
1. Online advertising: descript ion of a complex environment

1.1.   Internet users

Around 20% of the world population uses Internet regularly, with a penetration of more than 70%
in North America and around 50% in Europe. In these areas, Internet is spreading in all
demographic classes, including retired people and youngsters. Internet access in other continent is
growing very fast. At the beginning of 2008, Asia already represents around 40% of world Internet
users.
Internet users objectives today are wide-ranging: getting information, communicating, keeping in
touch with a community, having access to services... In this respect, Internet is a mass media and a
communication tool. It can also be seen as a new space, “territory”, where each object of the real life
has a corresponding image.

1.2. Advertisers
1.2.

While advertising spendings in the US and in Europe are growing very slowly (0 to 5% rates), online
advertising develops at a very fast pace, around 30% each year. Traditionally, advertising agencies
play an important role of intermediary. For a big campaign, advertisers call upon the services of an
advertising agency who will manage the relationships with all the media concerned. Lately, agencies
specialized in online advertising have emerged.
                           THE ECONOMICS OF ONLINE ADVERTISING                                          3

The online advertiser today can have very different profile: this goes from classical “offline” actors
(Danone, Coca Cola) to online pure players (Meetic), with all the intermediate situations (banking,
Amazon…). The size of the advertisers vary a lot. Internet has allowed a long tail phenomenon: a
multitude of small advertisers, like the corner flower shop, can advertise on the net with a very small
budget.
Advertising campaigns can be classified according to their objectives. Two main strategies should be
distinguished: brand popularity, where the aim is to develop and look after a brand image, and sales,
where the aim of the campaign is an increase in the sales of the product. The latter allows return on
investment measurement when assessing the efficiency of the campaign. This measure is especially
easy to make in the case of online sales: it is possible to compute the amount spent by a web user who
has followed a sponsored link.
A third objective has risen with online advertising: audience. Traffic has acquired a value in itself,
either to overcome networks externalities (advertising to constitute a sufficient user base when a
project is launched), or to re-sell ads to other advertisers. This adds up intermediates in the value
chain: Facebook could advertise on Google to get more traffic, in order to generates revenues from
advertising again.

1.3. The matching

Actors

The actor of the online advertising chain is a player able to sell an online visibility to an advertiser.
We can conceptualize this visibility as a space on a webpage, which value will depend on the number
and profile of the visitors of this page.
Thus, the first big actors on this market are the websites able to generate a high, regular and targeted
traffic. They create and look after this space by providing constant utility to their visitors. Whether
advertising is the final aim or a side effect of their activity doesn’t matter here, it will depend of the
importance of advertising for their revenues, and it often evolves with time for a given website.
This goes from Internet access providers (AOL, Free, Orange…) to social utilities (Linked In,
Facebook), communication tools (Yahoo mail, MSN messenger), news or local information providers
(Pages Jaunes, Yahoo News…), search engines (Google…), big web portals providing an ample
package of these services (Lycos…).
But this simple framework of online advertising has become more complex with the apparition of a
wide range of intermediaries and advertising products between these publishers and advertisers. The
basic intermediary, the advertising network, acts as a broker between the providers of this space, this
web audience, and advertisers. An other big player is the ad serving firm, which provides tools to
publishers and advertisers to manage the ads they directly sell and buy to each other. It is typically
Doubleclick positioning. Here lies the very heart of online advertising: actors able to provide the
most efficient matching between the space created by the content and services providers and the
needs of online advertisers. These players owns the techniques to provide elaborated advertising
products. They propose differentiated products through format: text, banners, video; and through
the level of targeting (see Products description below).
                           THE ECONOMICS OF ONLINE ADVERTISING                                               4

Thus, the framework would rather be: an interface provides services to web users, and generates web
traffic as a consequence. This web traffic has a value, and is harnessed thanks to advertising
specialists, before being sold to advertisers.




This leads to a first big distinction in online actors: the services and content providers (also called
publishers) who are primarily fighting to attract audience on one side and resell at best the resulting
ad inventory, and the advertisements specialists.
Sometimes, the two activities are clearly separated, as when Valueclick Media (an advertising
intermediation company) paid a website to place an ad, and get paid by an advertiser for this add.
Sometimes, the same actor owns and develops both at the same time. This is the case of Google, who
created both a high-valued service for web user (an efficient tool for online research), and an
advanced advertising system for advertisers. But even inside Google, these activities are separated.
The marketing department objectives are web traffic (by the development of products like Gmail,
Google Apps…), while sales teams objective is a classical turnover, by advertisements sales.

Products description

             There are three main components to online advertising. Creative (what does the ad look
          like), media planning (where do the ads run) and media buying (how do you pay for the ads).
                                                                                                    - Wikipedia

Online advertisement can take different format today. Almost everything can be done technically,
from graphical (the standard is the banner, sized 468×60 pixels) to the text adds (a title, two lines of
description plus a link on a search engines for example). More “aggressive” format, like pop-up or
flash animations are also common. Video is now possible, and even channels (like coca-cola art
gallery channel on Youtube). Less direct forms of online advertising can also be mentioned: emails,
(spams or legitimate), search engine optimization (increasing natural ranking of websites, either with
legitimate methods or artificially, using techniques called spamdexing), intrawebsites sponsoring,
impacting forums and blogs content about users opinions and advices… We won’t consider these
kinds of advertising here.
                              THE ECONOMICS OF ONLINE ADVERTISING                                                   5

Online advertising products specificities can be more precisely described according to the type and
level of targeting they provide to advertisers:




Targeting type Description Categories Examples
NB: It could be argued that frontiers between targeting levels as described here aren't always that clear. Moreover,
contextual and behavioural targeting can be mixed, as the geography of the IP address can be used for a contextual ad.


Pricing

The market of Internet ads enabled very flexible and sophisticated pricing models to appear. First, it
allows different degrees of guarantee through pay-for-results models. The simplest way in which
advertising is purchased is the Cost per Impression (CPM): the advertiser pays for each thousands of
screen impressions of his add. The next level is cost per click (CPC): the advertiser only pays when a
web users clicks on his add, it is equivalent to cost per visitors (CPV) systems and the most common
online. Then comes cost per action (CPA) or cost per lead (CPL): the ad leads to a predefined action
(online purchase, form completion, user inscription...) and the advertiser pays only when this level is
reached. It is mainly used in affiliate marketing: when a webmaster publishing content about a book
                          THE ECONOMICS OF ONLINE ADVERTISING                                        6

displays a link to the Amazon's page where it can be bought, and get a percentage of the resulting
sales.
Moreover, auctions systems are often involved to determine prices, especially for search engine
sponsored links. Search engines work on a CPC basis. Each ranking of sponsored links on search
engines depends on advertisers' bids placed on the keywords of the query. Clicks prices are adjusted
automatically according to the highest price that each bidder is ready to pay. The ranking also
depends on a relevance index: the click through rate (CTR), or number of clicks by impressions for
this add in the past. Thus, search engines adds are both filtered by the price advertisers are ready to
put on certain keywords, and by the rate of web users that have found the ad useful in the past.


2. Market analysis: what’s happening online?

This second part will focus on the online advertising sector itself, and try to give an overview of its
market structure. To do so, a short history of the sector will provide a first assessment of the main
forces in presence and the underlying dynamics.

2.1. A short history of the online advertising sector

Content providers/Publishers

The big historical and obvious actors on the net were big Internet access providers, like AOL in the
US or Wanadoo in France, or web browsers like Netscape. Then came star services of the net: email
accounts, chat, adds, web hosting… Web portals were then the key players: they were gathering these
new services into integrated base camps for the web user. The big traffic-generating websites of this
era are Lycos, MSN, Excite, Yahoo!, Ebay ...
After the crash of the Internet bubble in 2001, the so-called web2.0 participating era begins with
blogs success (MySpace), wikis, social utilities (Facebook) and broad access to heavier media content
(Youtube and Dailymotion... ).

Ad specialists

At first, content providers sold and managed directly their adds. A famous example is Hotwired, the
commercial web magazine who sold in 1994 the first advertising banner of the web history to AT&T
(Hotwired has been acquired by Lycos since).
However, online advertising specialists appeared soon, distinct from the content websites: first
Doubleclick in 1995, Aquantive in 1997... They are playing two main roles. The first one is ad
serving: when publishers and advertisers contract directly together, ad servers provide tools for
publisher to manage their advertising inventory, and tools for advertisers to manage their campaigns.
Their second function is brokerage: as ad networks they allowed offer and demand for online
advertising space to meet. These ad networks began to be used by big portals to get rid of unsold
spaces, and from there grew in importance. This role of broker was crucial because of the Internet
                          THE ECONOMICS OF ONLINE ADVERTISING                                         7

specificity as a vector of communication: it allows advertisers to reach a multitude of small web pages
at the same time (long tail phenomenon).
Soon, these brokers also specialized in ad techniques that allowed them to offer advanced formats,
pricing systems (like Overture) and targeting alongside with tools to monitor the effectiveness of a
campaign.

Special case of Search Engines Marketing

Search engines looked less obvious vectors of advertising first, as the role and techniques of targeting
in advertising wasn’t quite clear. Serguei Brin and Larry Page, when creating Google, were addressing
a central problem of the Internet: how to find the right information in the exponentially growing
web universe? They had no idea of the way they could remunerate there brilliant tool. With the same
insights, Yahoo refused to buy them the technology in 1998. The business model was only created
two years later with Adwords creation and we can say that the awakening occurred only plainly with
Google IPO in 2004 and the related publicity. Invading advertising was spreading (“rich media”
advertisement: banners, pop-ups, Flash animations...), and the big surprise came from the growing
popularity of simple texts ads provided by Google's Adwords with the results of the search engine.
The secret of this advertising program was its relevance: no annoying intrusion on the user screen,
and targeted items through the search query.
The model comes from Goto.com, who offered the first successful program of online advertising
with bid for placement and pay per click system. Renamed Overture Services in 2001, it was used by
MSN and Yahoo to extract profit from their search requests. Today's advertising giants integrates
search engines, big web portals and broad advertising networks.

The tree giants constitution: the advance of Google and the big 2007 acquisitions

In 2000, Google creates Adwords, its programs specialized in sponsored adds for the search engine.
In 2003 comes Adsense program, that give advertisers the opportunity to place simple text adds
automatically on websites with relevant content.
This creation follows the acquisition of Applied Semantics, a small search engine specialized in lexical
analysis. Since then, the “content” channel has taken a growing share in Google's total revenue, with
complementaries (Adsense for search allowing websites to use a small Google search engine, Adsense
for mobile to display adds on mobile webpages...). The paying side of Adsense is designed exactly as
Adwords'.
From 2000 to 2004 the Yahoo search results were provided by Google. At the end of this
partnership, Yahoo returned to its own technology, partially created from Inktomi's, a search engine
acquired two years before. Yahoo had bought Overture one year before and was thus owner of the
two sides of the search engine market.
The pricing system needed to be updated (no account of ad relevance was made on search sponsored
links ranking), which was done in 2007 with the launch of Panama sales system. Yahoo also proposes
an advertising network for content: Yahoo for publishers, which is only available in the US for the
moment.
                          THE ECONOMICS OF ONLINE ADVERTISING                                        8

Search advertisement remains the largest segments of revenue for these two actors.
Microsoft was the last to develop its own advertising system: until 2006, Microsoft adCenter
revenues were coming from Overture. Microsoft developed its own system, using the acquisition of
DeepMetrix (creating web-analytics software) in 2006. The sales system is similar to Adwords, with
some specificities: the maximal bid can be adjusted to the demographic type of the user (when
possible), specific days of the week or time of the day can be chosen to display the ad. Up to now,
there is no publisher network, the only content-targeted add available are displayed on MSN
websites.
In 2007, the three big search engines made a last move to strengthen their position in online
advertising. It began with the acquisition of Doubleclick by Google for 3,1 billions, followed by the
acquisition of Rightmedia (650 millions) and aQuantive (6 billions) by Yahoo and Microsoft
respectively. With aQuantive, Microsoft acquires an interactive agence (Avenue A Razorfish), a
publisher network (Drive pm) and a provider of advertising tools and technologies (Atas Solutions).
With RightMedia, Yahoo gets a successful ad network. Doubleclick provides Google with ad serving
tools.


2.2. Market definition: 3 distinct markets?

The study of the online advertising sector is complicated by the fact that sub markets can be
distinguished within the green “ad providers” rectangle of the diagram we had in the first part. In its
statement about the Google/Doubleclick case, the Federal Trade Commission notes that an “all
online advertising market” isn't relevant for the analysis. It follows from its analysis that three
markets can be taken into account: ad serving, ad intermediation and a possible separated sponsored
search advertising market. The European Commission, while clearing the acquisition of Doubleclick
by Google in a March 08 press release, mentions two markets: ad serving market (Doubleclick's
speciality) and intermediation in online advertising market (Google's) and suggests a vertical
relationship between them. It cites publishers, advertisers, ad networks as there clients.
                            THE ECONOMICS OF ONLINE ADVERTISING                                        9

Ad serving

Ad servers provide tools for publishers, advertisers and advertising networks to manage and monitor
advertising campaigns. According to the Federal Trade Commission, the high degree of competition
on this market resulted recently in a decrease of prices and margins, allowing to define ad serving as a
commodity good.
Doubleclick has a leading position on this market, aQuantive, 24/7 Real Media, Valueclick are other
big players.

Advertising intermediation

The Federal Trade Commission underlines the fact that advertisement sold via direct and indirect
channels aren't substitutes, because they respond to different needs. A big publisher will sell directly
its first choice space (or premium space: top of the large-audience pages), and sell the remnant space
through intermediates. Small advertisers are more likely to use only ad intermediation. From the
publishers point of view, these two channels answer to different needs; the direct channel allows a
higher control, via ad serving, and give access to premium advertising space, whereas indirect
channels gives the opportunity to target web users differently. Two types of brokerage can be
distinguished: advertising networks and advertising exchange, according to the visibility the broker
allows between publishers and advertisers. Advertising exchange, like Rightmedia, differentiated by
proposing a place where advertisers and publishers were directly in contact rather than facing the
“black box” an advertising network can sometimes look like.
Within advertising networks, some providers like Adsense are characterized by the contextual
targeted add they provide. According to the FTC contextual targeted add doesn't constitute a
separated market: prices an quality of these adds remain constrained by the rest of the advertising
networks products. This gives highly differentiated products on this market.
It is important to note that as a result, advertisers often use several ad networks for a campaign. For
these reasons, the FTC concludes that this market is unlikely to end up with only one major actor.
The big players on this market are Google, Yahoo, Microsoft and Time Warner via AOL.

Sponsored search advertisement

When directly displayed on the search engine website, sponsored search doesn't involve publishers.
Thus, the FTC distinguishes this market because sponsored search advertisement can't be considered
as a substitute for advertising sold directly or indirectly by a publisher. In France according to Xerfi,
30% of the online advertising spendings go to sponsored search.
The market shares in sponsored search advertisement are closely related to the audience of search
engines. The leading player is Google Adwords, which is also used on Time Warner/AOL, Ask
Networks, Myspace and Netscape through partnerships.
Search entity US share of searches, Nov 07
                          THE ECONOMICS OF ONLINE ADVERTISING                                       10




Thus, only three significant actors are present today: the trio Google-Yahoo-Microsoft. This market
is very concentrated because search engines are very capital intensive industries today: they imply
high fixed costs through hardware, software research and connection capacities investments.
However it is important to note that this sector, though relatively international, encounters
important disparities worldwide. If it is true that web users can easily switch from a search engine to
another, countries and cultures have their favourite search engines, either on the ground of historical
or cultural reasons. This is reflected in the shares of worldwide searches, where we see that emerging
Internet markets have their home-built search engines, who already account for a significant part of
global web audience. (Baidu and Alibaba are Chinese, NHN is Corean and Yandex Russian)
World share of searches




                             specificities
Summing up the three markets spe cificities
                          THE ECONOMICS OF ONLINE ADVERTISING                                        11

The Internet proposes a global and wide network as never before. This has some important effects on
the markets. One knows that the existence of networks tends to generate a “winner takes-most”
world, id est, a world where one firm or a very small number of firms has the greatest market share.
Thus, a market structure of small but equal firms or small but equal market exchanges is less likely to
survive in an Internet world since small advantages tend to be magnified and to become more
important as the Internet smoothes out flows and removes frictions that used to support early
egalitarian market structures.


2.3. Integration

Search engines and advertising

The recent moves in the sector show that search engines have become central actors in online
advertising: those who wanted to play a role in advertising decided to acquire and develop the
technology by themselves rather than outsourcing it. We can give two main reasons for this. The first
lies in the web users side of the model: search engines are central in day to day web surfing, they
either attracted so much web users as to become a central portals by themselves (Google), or became
inescapable on existing portals (Yahoo, MSN). These hubs of web traffic give a favoured relationship
with the web user: each step he makes on the net can be monitored from here, and the format of the
search engine allows one of the best quality ads products (in terms of high targeting and no bothering
for the user). The second is linked to technology: search engines are able to understand web users
needs and the general structure of Internet. Their specialization in data storing and data mining, in
applied linguistics gives them obvious advantage when it comes to provide targeted ads.
Moreover, there is a possible circle here: if the main search engines are vertically integrated to big
advertising players and horizontally very concentrated because of their capital intensity, it can be
difficult to outsource search engine technology to someone else than a competitor. This played
certainly a role in the decision of Yahoo to acquire Inktomi in 2002 and end its partnership with
Google in 2004.

Three big actors, three markets

In any case, with the 2007 big acquisitions of Google, Yahoo and Microsoft, three big actors emerge
that play a significant role on the three markets defined above. We cannot exactly talk about vertical
integration, as these markets can't be vertically ordered, but there seems to be a logic pushing the big
three to create or consolidate a position in all of them. As the FTC itself states at the end of its
decision in the Google-Doubleclick case, the environment is moving at a very fast pace. The
independence of the markets can change and there is a competitive advantage in being present on all
the range. It could be argued for example that sponsored search is very close to contextually targeted
adds: they often use the same format (small text adds), the same pricing (CTC), and sponsored
search can even involve a publisher intervention (Adsense for Search, for example, displays a small
search engine on a publisher websites). Both are managed by the same sales team within Google.
                           THE ECONOMICS OF ONLINE ADVERTISING                                         12




Other players are fighting to also play a role in these markets. This is the case of AOL, subsidiary of
Time Warner and historically a big access provider in the US. It lately grouped all its advertising
businesses under a single name: Plateform A, and its advertising revenues are about to outrun its
subscription revenues. In 2007, AOL acquired Tacoda, a behavorial targeting network, AdTech, an
ad serving company, and Quigo, a contextual targeting network. This puts AOL in direct
competition with Google, who is also one of its important shareholders, on ad serving and
intermediation markets.

                                Internet
Vertical integration within the In ternet

There exists a de facto vertical integration between publishers and advertising specialists. Big
publishers have sometimes developed their advertising activity as a result of their audience: it is the
case of Yahoo and MSN, and even Google if we consider the search engines as publishers. Specialists
agree on the fact that with the advertising model, publishers sector should consolidate around a
stationary numbers of key publishers in the coming years, following the printed press model and its
volatility. It should be emphasized that the model cannot be transposed that easily, and that the
Internet presents features printed press can't simulate: cost structure and especially relationship with
the clients, with a quasi-infinite targeting possibility and the so-called long-tail phenomenon. It
would be interesting to study what are exactly the affinities and differences between the two models,
using especially two-sided models. In this framework anyway, the vertical control of an ad specialist
over a big publisher, or inversely the control of a publisher over the sales of his ad inventory, can be a
key factor of success.

Vertical integration with offline agents

Some recent connections in the sector let suspect a dynamic of vertical integration toward agencies.
WPP group, second actor worldwide in publicity and marketing, announced the acquisition of 24/7
Real Media in May 2007. 24/7 Real Media is present in the three markets, and a leading player in ad
serving for publishers. With aQuantive, Microsoft acquired Avenue A. Razorfish, an interactive
agency. In January 2008 Google and Publicis CEO met and announced a partnership, which content
hasn't been unveiled yet.
                           THE ECONOMICS OF ONLINE ADVERTISING                                         13

Martin Sorrell, CEO of WPP, describes the two big growth areas for today's communications groups
in an interview with de Financial Times in March 08: emerging markets (mainly China and India)
and numerical technologies for the Europe and US stagnant growths. WPP is the biggest client of
Google, and also a competitor since Doubleclick acquisition. Microsoft is its 7th biggest client, and a
competitor too with aQuantive... The « digitalisation » is thus one of the biggest issues for
communication in general today.


               two-
2.4. A kind of two -sided market?

The whole chain, from the web user to the advertiser, can be analysed as a special type of two-sided
market: what is special here is its unbalanced property, the more an interface has web users the more
the product is valuable for advertisers, but the adverse doesn’t hold: the number of advertisers isn’t
significantly valuable for a search-engine user or a webpage visitor (it can be, in the case of a shopping
request on a search engine, it can also be the contrary, if advertising is aggressive or badtargeted).
In the process, breaking up this chain into the three markets described above allows analyzing further
the phenomenon. Ad serving consists in the sale of tools and services to two types of clients:
advertisers and publishers. There can be compatibility and thus network externalities here, but the
two-sided market models don’t look relevant here. Ad intermediation is a pure example of two-sided
market, with publishers in the one hand and advertisers in the other. Search sponsoring is a two sided
market between web users and advertisers.


            further
3. Idea for fur ther research

3.1. Short welfare analysis: back to the user point of view
3.1.

A public economics analysis, based on web users utility, would enrich the description of online
advertising. Could the “control” given to final web users through the importance of web traffic
ensure a minimal efficiency?
The more advertising is targeted, the more it is valuable for a potential consumer (or the less harmful
for a web user). Thus, web users are more inclined to follow sponsored links, and less annoyed by
advertising. On the other hand, advertisers gain from more profitable clicks.
This targeting system is backed up by an elaborated pricing and auction system, which allows the
relevance of an ad to play a significant role: even a sponsored links of Google or Yahoo are filtered by
relevance (historic data on CTR), which means that users know they can “trust” these links. This
relevance effect mixed with the growing fine-tuning of targeting in online advertising has allowed an
optimisation never seen before in this field.
                            THE ECONOMICS OF ONLINE ADVERTISING                                     14

3.2. Advertisers strategies: auction theory

An analysis of the efficiency of these market through auction and information theory would also be
profitable. A wide literature already exists on search engine economics and second price auctions
(Varian, Athey and Ellison, Edelman, Ostrovsky and Schwartz).

Conclusion

The description provided here gives the basic tools to analyse the sector: three distinct markets as
described by the Federal Trade Commission are today consolidated, with specific structures. What is
striking when we look at this sector is its complexity and obscurity from the outside point of view.
Internet sectors are moving very fast and become more and more complex, letting theories (in
economics, law, ethics... ) often far behind. Hal Varian, one of the sector specialists and chief
economist at Google, predicts that online advertising will become as central and complicated as
finance was when it took off twenty years ago. Current events show that it makes Internet difficult to
regulate, and burning issues remain today unsolved. One can site, among others, privacy matters that
appear with the growing importance of online advertising model and the resulting place of web users
targeting.
It then seems interesting to promote the creation of Forums or Conferences where people of different
horizons, such as IT specialists, financiers, lawyers and so on could meet in the same place and talk
about vibrant topics induced by the Internet and the information age. One could also imagine the
foundation of an Internet Organization or Information Organization or simply the creation of a
specific department within the World Trade Organization or the United Nations, regrouping all the
countries of the world and controlling/supervising the developments of the IT in order to guarantee a
beneficial Internet.


References

Athey, Ellison, 2007, Position Auctions with Consumer Search
Caillaud, Julien, 2001, Chicken and egg: Competing MatchMakers
Caillaud, Tregouët, 2006, Economie des Marchés Bifaces
Edelman, Ostrovsky, Schwartz, 2005, Internet advertising and the generalised second price auction
Ellam, Ottaviani, 2005, Overture and Google: Internet PPC Advertising Auctions
Fallows, 2005, Search Engines Users
Rochet, Tirole, 2004, Two-sided markets: an overview
Van Couvering, 2004, New Media? The Political Economy of Internet SearchEngines
Varian, 2003, Economics of Information Technology
Varian, 2007 , Economics of Internet Search
Varian, 2006 , Position Auctions
Xerfi, 2008, Les medias dans le monde
Xerfi, 2007, Les régies publicitaires en France
                            THE ECONOMICS OF ONLINE ADVERTISING                                             15


Links

Online Advertising on Wikipedia:
en.wikipedia.org/wiki/Online_advertising
Google-Doubleclick case:
http://www.ftc.gov/os/caselist/0710170/071220statement.pdf
List of top visited websites:
www.alexa.com
Links on Information Economics created by Varian:
http://www2.sims.berkeley.edu/resources/infoecon/


Glossary & Acronyms

CTR: Click-through rate
CPC: Cost per click
CPM: Cost per impression
SEO: Search Engine Optimization
SEM: Search Engine Marketing
Ad serving: Ad serving is a product sold either to publishers or advertisers for them to manage their
advertising inventory. The leading ad serving firm is Doubleclick.
Ad networks: Advertising Networks are companies that play the role of brokers of web advertising.
They connect websites willing to host advertisements to advertisers. The typical advertising network
was Doubleclick at its creation. Big search engines often became ad networks as they became ad
specialists.
Affiliate networks / Affiliate marketing: web-based marketing practice in which a business rewards one
or more affiliates for each visitor or customer brought about by the affiliate's marketing efforts. (Wikipedia)
Examples: Amazon, Performics, Hydra Network, Commission Junction/BeFree, LinkShare, Primeq
or Azoogle

				
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